Thriving Hospital Gift Shops-Just What the Doctor Ordered

The Cohen's venture began in 1981 when they opened a Hallmark store in a local shopping center. Michael, a former financial analyst, had decided to give the entrepreneurial route a try. Lori, a first-grade teacher, soon joined him and together they built a successful local business by adding personal touches such as sending thank-you notes to their customers.

Their transition to the hospital market was purely by chance, but they saw the opportunity and seized it. A local hospital administrator, liking their shop, recommended the Cohens to run his hospital's new gift shop. After just nine months in operation, the hospital shop was doing so well that the Cohen's sold their original shop and focused their attention on hospitals. Within a few years, their business quickly expanded, branching out in hospitals throughout Texas and the Northeast. Plans include opening five new stores, with the possibility of expanding into California, Hawaii, and Alaska.

Today, their shops sell approximately $10 million in gift items including cards, magazines, flowers, and stuffed animals-all within hospitals and all within small amounts of space. The original hospital shop, for instance, is only 200-square feet, yet its annual sales are $1,000 per square foot. Their typical shop is 500 square feet and does $200,000 in sales a year, according to The Dallas Morning News. Their highest volume per square-foot shop, located in Houston, Texas, brought in more than $390,000 last year from a 300 square-foot area.

"Hospitals are our business," says Cohen. And the business is clearly working. Yet, with such a narrowly-defined focus, special attention needs to be paid to their marketing strategies and customer base.

To sell their idea to hospitals, especially in these days of health care reforms and cost-cutting measures, Michael offers a three-part promise: higher profits, better service, and new equipment and inventory at no cost to the hospital. These are items that volunteer organizations cannot provide, he says.

Once the idea is sold, the Cohens invest approximately $60,000 to open the new store, which typically pays for itself in two to four years. When the operation becomes profitable, the hospital gets its share without the burden of running the operation, and it has bragging rights to a well-run, much appreciated service. According to The Dallas Morning News, the Cohens employ 80 full-time and 220 part-time employees to operate their chain. Lori and one other full-time buyer take care of the inventory.

The Cohens' customer base falls into two categories: visitors buying gifts for patients and hospital employees buying small-ticket items such as beverages, candy, and the occasional last-minute Valentine's Day gift. In efforts to get repeat business and entice hospital employees to spend money on bigger ticket items, the Cohens offer frequent shopper cards and have 20 percent-off-days for employees.

Health care reforms are taking their toll on business, but the Cohens adjust accordingly. With hospital stays decreasing and outpatient procedures increasing, the Cohens now focus their expansion efforts on hospitals that have at least 150 inpatients a night. People just don't buy gifts for outpatients, according to Michael. They do, however, buy gifts for mothers and newborns. In fact, babies are their "best business," he says. "Nobody's going to go upstairs to that new mother empty-handed."